EXHIBIT (a)(1)(ii) |
EXHIBIT (a)(1)(ii) |
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. |
800 Scudders Mill Road Plainsboro, New Jersey 08536 |
OFFER TO PURCHASE FOR CASH 5,000,000 OF ITS ISSUED AND OUTSTANDING SHARES AT NET ASSET VALUE PER SHARE |
SUMMARY TERM SHEET |
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION IN THIS OFFER TO PURCHASE. TO UNDERSTAND THE OFFER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE OFFER, YOU SHOULD READ CAREFULLY THIS ENTIRE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL. WE HAVE INCLUDED SECTION REFERENCES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS IN THIS SUMMARY. |
• | WHAT SECURITIES IS MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. OFFERING TO PURCHASE? The Fund is offering to purchase up to 5,000,000 Shares of its common stock from you and other stockholders. If more than 5,000,000 Shares are surrendered (or “tendered”) by stockholders in response to this Offer, the Fund expects either to extend the Offer period and increase the number of Shares it is offering to purchase or to purchase the Shares tendered on a pro rata basis. This Offer is not conditioned upon the tender of any minimum number of Shares. See Section 1 “Price; Number of Shares.” |
• | HOW DO I TENDER MY SHARES? See Section 2 “Procedure for Tendering Shares.” |
• | If your Shares are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, you must contact that entity and request that your shares be tendered to the Fund. |
• | If you wish to tender your Shares and your Shares are registered in your name, you may send your Share certificates, a properly completed and executed Letter of Transmittal and any additional documents required by the Letter of Transmittal to the Transfer Agent. The Transfer Agent must receive these documents prior to the expiration date of the offer (currently Monday, August 20, 2001). |
• | HOW MUCH IS THE FUND OFFERING TO PAY ME FOR MY SHARES? The Fund will pay you cash in an amount equal to the Fund’s net asset value per Share (“NAV”) as of the close of business of the New York Stock Exchange, less any applicable early withdrawal charge, on the expiration date (currently Monday, August 20, 2001). As of July 19, 2001, the Fund’s NAV, which fluctuates on a daily basis, was $9.44 per Share. See Section 1 “Price; Number of Shares” and Section 3 “Early Withdrawal Charge.” |
• | WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I TENDER MY SHARES? The Fund will assess an early withdrawal charge on your Shares if you have held your Shares for less than three years when the tender offer begins. The maximum charge is 3% of the value of the tendered Shares, scaled down for each year you held your Shares, reaching zero after three years. The charge is not imposed on Shares you may have acquired through reinvestment of dividends nor on the value of your Shares attributable to capital appreciation. If you are a Merrill Lynch customer, Merrill Lynch may charge you a $5.35 processing fee to confirm the Fund’s purchase of your Shares. If you tender your Shares through a broker, dealer or other nominee, that broker, dealer or other nominee may charge you a fee for processing the transaction on your behalf. See Section 2 “Procedure for Tendering Shares” and Section 3 “Early Withdrawal Charge.” |
• | WILL THERE BE ANY TAX CONSEQUENCES TO ME IF I TENDER MY SHARES? If your tendered Shares are accepted, it will be a taxable transaction either in the form of a “sale or exchange” or under certain circumstances as a “dividend.” You should consult your tax advisor regarding the tax consequences to you of tendering your Shares. See Section 13 “Certain Federal Income Tax Consequences.” |
• | WHEN WILL THE OFFER EXPIRE? HOW WILL I KNOW IF THE OFFERING PERIOD IS EXTENDED OR IF THE OFFER IS TERMINATED? The Offer expires Monday, August 20, 2001 unless the Fund makes a public announcement either extending or terminating the Offer. If the Offer period is extended, the Fund’s |
public announcement will be made no later than 9:00 a.m. on the next business day after the previously scheduled expiration date. See Section 1 “Price; Number of Shares” and Section 14 “Extension of Tender Period; Termination; Amendments.” |
• | MAY I WITHDRAW MY TENDERED SHARES? You may withdraw your tendered Shares at any time prior to the expiration date, which, unless extended, is currently Monday, August 20, 2001. Additionally, if the Fund has not yet accepted your tendered Shares for payment, you may withdraw your tendered Shares at any time after September 17, 2001. To withdraw your tendered Shares, you should contact your Merrill Lynch Financial Advisor or other nominee, or you should submit proper written notice to the Fund’s Transfer Agent. See Section 4 “Withdrawal Rights.” |
• | DOES THE FUND HAVE THE FINANCIAL RESOURCES TO PAY ME FOR MY SHARES? Assuming that the Fund purchases 5,000,000 Shares at the July 19, 2001 NAV of $9.44 per Share, the Fund’s total cost, not including fees and expenses incurred in connection with the Offer, will be approximately $47.2 million. The Fund believes that it will not need to borrow money to finance the purchase of the tendered Shares, although the Fund has the authority to do so if necessary. See Section 9 “Source and Amount of Funds.” |
• | MIGHT THIS BE MY LAST OPPORTUNITY TO TENDER SHARES TO THE FUND? Yes. On June 7, 2001, the Fund’s Board of Directors approved a transaction whereby the Fund will be acquired by MuniAssets Fund, Inc., an exchange listed closed-end municipal bond fund (the “Reorganization”). If the Fund’s stockholders approve the Reorganization, it is anticipated that this Offer will be the Fund’s final tender offer for its Shares. MuniAssets Fund, Inc. does not make tender offers for its shares, which are purchased and sold at market price on each day that the New York Stock Exchange is open for trading. If the Reorganization is not consummated, the Fund’s Board of Directors currently intends to resume its practice of considering whether to make similar tender offers each quarter. However, in such event, the Fund cannot assure you that you will be provided with sufficient liquidity, or that the Fund will make a similar tender offer in the future. Neither the Fund nor its Board of Directors makes any recommendation as to whether or not you should tender your Shares. See Section 7 “Purpose of the Offer” and Section 8 “Certain Effects of the Offer.” |
• | WHY IS THE FUND MAKING AN OFFER TO PURCHASE SHARES OF ITS COMMON STOCK? No established secondary trading market currently exists for the Fund’s Shares. As a result, the Fund’s Board of Directors decided to provide liquidity for stockholders by making this Offer. Neither the Fund nor its Board of Directors makes any recommendation as to whether or not you should tender your Shares. See Section 7 “Purpose of the Offer.” |
• | WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? This Offer is not conditioned upon the tender of any minimum number of Shares. The Fund is not required to accept or pay for any Shares tendered. Under certain circumstances, the Fund may terminate or amend the Offer or postpone the acceptance of Shares for payment. See Section 6 “Certain Conditions of the Offer.” |
• | IF I DECIDE NOT TO TENDER MY SHARES, HOW WILL THE OFFER AFFECT MY SHARES? If you do not tender your Shares, you may be subject to certain risks resulting from the Fund reducing its assets to pay for tendered Shares. These risks include increased volatility in the Fund’s NAV and higher expenses. See Section 8 “Certain Effects of the Offer.” |
• | WHO SHOULD I CALL IF I NEED MORE INFORMATION? Questions and requests for assistance may be directed to your Merrill Lynch Financial Advisor or other nominee, or to the Transfer Agent at the address and telephone number set forth below. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal should be directed to Financial Data Services, Inc. |
Transfer Agent: | ||||
Financial Data Services, Inc. | ||||
P.O. Box 45289 | ||||
Jacksonville, Florida 32232-5289 | ||||
Attn: Merrill Lynch Municipal Strategy Fund, Inc. | ||||
(800) 637-3863 | ||||
2 |
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. |
800 Scudders Mill Road Plainsboro, New Jersey 08536 |
OFFER TO PURCHASE FOR CASH 5,000,000 OF ITS ISSUED AND OUTSTANDING SHARES AT NET ASSET VALUE PER SHARE |
THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 4:00 P.M., EASTERN TIME, ON MONDAY, AUGUST 20, 2001, UNLESS EXTENDED. |
To the Holders of Shares of MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.: |
The Fund is offering to purchase up to 5,000,000 of its shares of common stock, par value $.10 per share (the “Shares”), for cash at a price equal to their net asset value (“NAV”), less any applicable Early Withdrawal Charge, as of the close of business of the New York Stock Exchange on Monday, August 20, 2001, the Expiration Date, unless extended, upon the terms and conditions set forth in this Offer to Purchase (the “Offer”) and the related Letter of Transmittal. The Shares are not currently traded on an established secondary market. The NAV on July 19, 2001 was $9.44 per Share. You can obtain current NAV quotations from your Merrill Lynch Financial Advisor or Financial Data Services, Inc. (“FDS” or the “Transfer Agent”). See Section 1 “Price; Number of Shares.” The Fund presently intends each quarter to consider making a tender offer for its Shares at a price equal to their then current NAV. |
If more than 5,000,000 Shares are duly tendered prior to the expiration of the Offer, assuming no changes in the factors originally considered by the Board of Directors when it determined to make the Offer, the Fund will either (1) extend the Offer period, if necessary, and increase the number of Shares that the Fund is offering to purchase to an amount which it believes will be sufficient to accommodate the excess Shares tendered as well as any Shares tendered during the extended Offer period, or (2) purchase 5,000,000 Shares (or such greater number of Shares sought) on a pro rata basis. |
THIS OFFER IS BEING MADE TO ALL STOCKHOLDERS OF THE FUND AND IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. |
IMPORTANT |
On June 7, 2001, the Fund’s Board of Directors approved a transaction whereby the Fund will be acquired by MuniAssets Fund, Inc., an exchange listed closed-end municipal bond fund (the “Reorganization”). If the Fund’s stockholders approve the Reorganization, it is anticipated that this Offer will be the Fund’s final tender offer for its Shares. MuniAssets Fund, Inc. does not make tender offers for its shares. If the Reorganization is not consummated, the Fund’s Board of Directors currently intends to resume its practice of considering whether to make similar tender offers each quarter. However, in such event, the Fund cannot assure you that you will be provided with sufficient liquidity, or that the Fund will make a similar tender offer in the future. |
If you desire to tender all or any portion of your Shares, you should either (1) request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you, or (2) if you own your Shares directly, complete and sign the Letter of Transmittal and mail or deliver it along with any Share certificate(s) and any other required documents to the Fund’s Transfer Agent. If your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact such broker, dealer, commercial bank, trust company or other nominee if you desire to tender your Shares. Shares held in your Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) brokerage account are registered in the name of Merrill Lynch and are not held by you directly. Merrill Lynch may charge its customers a $5.35 processing fee to confirm a repurchase of Shares from such customers pursuant to the Offer. |
1 |
NEITHER THE FUND NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES, AND IF SO, HOW MANY SHARES TO TENDER. |
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE FUND AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. |
Questions and requests for assistance may be directed to your Merrill Lynch Financial Advisor or other nominee, or to the Transfer Agent at the address and telephone number set forth below. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal should be directed to FDS. |
July 23, 2001 | MERRILL LYNCH HIGH INCOME | |
MUNICIPAL BOND FUND, INC. |
Transfer Agent: | ||||
Financial Data Services, Inc. | ||||
P.O. Box 45289 | ||||
Jacksonville, Florida 32232-5289 | ||||
Attn: Merrill Lynch Municipal Strategy Fund, Inc. | ||||
(800) 637-3863 | ||||
TABLE OF CONTENTS |
Section | Page | |||
1. | Price; Number of Shares | 3 | ||
2. | Procedure for Tendering Shares | 3 | ||
3. | Early Withdrawal Charge | 4 | ||
4. | Withdrawal Rights | 4 | ||
5. | Payment for Shares | 5 | ||
6. | Certain Conditions of the Offer | 5 | ||
7. | Purpose of the Offer | 6 | ||
8. | Certain Effects of the Offer | 6 | ||
9. | Source and Amount of Funds | 6 | ||
10. | Summary of Selected Financial Information | 6 | ||
11. | Certain Information About the Fund | 7 | ||
12. | Additional Information | 8 | ||
13. | Certain Federal Income Tax Consequences | 8 | ||
14. | Extension of Tender Period; Termination; Amendments | 9 | ||
15. | Miscellaneous | 9 |
2 |
The Offer is being made to all stockholders of the Fund and is not conditioned upon any number of Shares being tendered. If more than 5,000,000 Shares are duly tendered prior to the expiration of the Offer, assuming no changes in the factors originally considered by the Board of Directors when it initially determined to make the Offer, the Fund will either (1) extend the Offer period, if necessary, and increase the number of Shares that the Fund is offering to purchase to an amount which it believes will be sufficient to accommodate the excess Shares tendered as well as any Shares tendered during the extended Offer period, or (2) purchase 5,000,000 Shares (or greater number of Shares sought) on a pro rata basis. |
As of June 30, 2001, there were approximately 14 million Shares issued and outstanding and there were 325 holders of record of Shares (in addition, Merrill Lynch maintains accounts for 4,302 beneficial owners of Shares). The Fund has been informed that none of the Directors, officers or affiliates of the Fund intends to tender any Shares pursuant to the Offer. The Shares currently are not traded on any established secondary market. Current NAV quotations for the Shares can be obtained from your Merrill Lynch Financial Advisor or FDS at (800) 637-3863. |
A. Procedures for Beneficial Owners Holding Shares Through Merrill Lynch or Other Brokers or Nominees. |
If your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact such broker, dealer, commercial bank, trust company or other nominee if you desire to tender your Shares. You should contact such broker, dealer, commercial bank, trust company or other nominee in sufficient time to permit notification of your desire to tender to reach the Transfer Agent by the Expiration Date. No brokerage commission will be charged on the purchase of Shares by the Fund pursuant to the Offer. However, a broker or dealer may charge a fee for processing the transaction on your behalf. Merrill Lynch may charge its customers a $5.35 processing fee to confirm a purchase of Shares pursuant to the Offer. |
B. Procedures for Registered Stockholders. |
If you will be mailing or delivering the Letter of Transmittal and any other required documents to the Transfer Agent in order to tender your Shares, they must be received on or prior to the Expiration Date by the Transfer Agent at its address set forth on page 2 of this Offer to Purchase. |
Signatures on the Letter of Transmittal MUST be guaranteed by a member firm of a registered national securities exchange, or a commercial bank or trust company having an office, branch or agency in the United States, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient. |
Payment for Shares tendered and purchased will be made only after receipt by the Transfer Agent on or before the Expiration Date of a properly completed and duly executed Letter of Transmittal and any other required documents. If your Shares are evidenced by certificates, those certificates also must be received by the Transfer Agent on or prior to the Expiration Date. |
3 |
The method of delivery of any documents, including certificates for shares, is at the election and risk of the party tendering the shares. If documents are sent by mail, it is recommended that they be sent by registered mail, properly insured, with return receipt requested. |
C. Determinations of Validity. |
All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tenders will be determined by the Fund, in its sole discretion, whose determination shall be final and binding. The Fund reserves the absolute right to reject any or all tenders determined by it not to be in appropriate form or the acceptance of or payment for which would, in the opinion of counsel for the Fund, be unlawful. The Fund also reserves the absolute right to waive any of the conditions of the Offer or any defect in any tender with respect to any particular Shares or any particular stockholder, and the Fund’s interpretations of the terms and conditions of the Offer will be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such times as the Fund shall determine. Tenders will not be deemed to have been made until the defects or irregularities have been cured or waived. Neither the Fund, its investment adviser and administrator, Merrill Lynch Investment Managers, L.P. (“MLIM”), nor the Transfer Agent, nor any other person shall be obligated to give notice of any defects or irregularities in tenders, nor shall any of them incur any liability for failure to give such notice. |
D. Tender Constitutes an Agreement. |
A tender of Shares made pursuant to any one of the procedures set forth above will constitute an agreement between the tendering stockholder and the Fund in accordance with the terms and subject to the conditions of the Offer. |
Year of Tender After Purchase | Early Withdrawal Charge | ||
---|---|---|---|
First | 3.0% | ||
Second | 2.0% | ||
Third | 1.0% | ||
Fourth and following | 0.0% |
In determining whether an Early Withdrawal Charge is applicable to a tender of Shares, the calculation will be determined in the manner that results in the lowest possible amount being charged. Therefore, it will be assumed that the tender is first of Shares acquired through dividend reinvestment and of Shares held for over three years and then of Shares held longest during the three-year period. The Early Withdrawal Charge may be waived on Shares tendered following the death of all beneficial owners of such Shares, provided the Shares are tendered within one year of death (a death certificate and other applicable documents may be required) or if later, reasonably promptly following completion of probate, or in connection with involuntary termination of an account in which Fund Shares are held. At the time of acceptance of the Offer, the record or succeeding beneficial owner must notify the Transfer Agent either directly or indirectly through the Distributor that the Early Withdrawal Charge should be waived. Upon confirmation of the owner’s entitlement, the waiver will be granted; otherwise, the waiver will be lost. |
4 |
Stockholders whose accounts are maintained through Merrill Lynch should notify their Merrill Lynch Financial Advisor prior to the Expiration Date if they wish to withdraw Shares. Stockholders whose accounts are maintained through another broker, dealer, commercial bank, trust company or other nominee should notify such nominee prior to the Expiration Date. Stockholders whose accounts are maintained directly through the Transfer Agent should submit written notice to the Transfer Agent. |
To be effective, any notice of withdrawal must be timely received by the Transfer Agent at the address set forth on page 2 of this Offer to Purchase. Any notice of withdrawal must specify the name of the person having deposited the Shares to be withdrawn, the number of Shares to be withdrawn, and, if the certificates representing such Shares have been delivered or otherwise identified to the Transfer Agent, the name of the registered holder(s) of such Shares as set forth in such certificates and the number of Shares to be withdrawn. If the certificates have been delivered to the Transfer Agent, then, prior to the release of such certificate, you must also submit the certificate numbers shown on the particular certificates evidencing such Shares and the signature on the notice of the withdrawal must be guaranteed by an Eligible Institution. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Fund in its sole discretion, whose determination shall be final and binding. Shares properly withdrawn shall not thereafter be deemed to be tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 2 “Procedure for Tendering Shares.” |
Payment for Shares will be made promptly by the Transfer Agent to tendering stockholders as directed by the Fund. Certificates for Shares not purchased (see Section 1 “Price; Number of Shares” and Section 6 “Certain Conditions of the Offer”), or for Shares not tendered included in certificates forwarded to the Transfer Agent, will be returned promptly following the termination, expiration or withdrawal of the Offer, without expense to the tendering stockholder. |
The Fund will pay all transfer taxes, if any, payable on the transfer to it of Shares purchased pursuant to the Offer. If tendered certificates are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any such transfer taxes (whether imposed on the registered holder or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. The Fund will not pay any interest on the purchase price under any circumstances. |
As noted above, Merrill Lynch may charge its customers a $5.35 processing fee to confirm a purchase of Shares from such customers pursuant to the Offer. |
If the Fund determines to amend the Offer or to postpone the acceptance for payment of or payment for Shares tendered, it will, to the extent necessary, extend the period of time during which the Offer is open. |
5 |
Moreover, in the event any of the foregoing conditions are modified or waived in whole or in part at any time, the Fund will promptly make a public announcement of such waiver and may, depending on the materiality of the modification or waiver, extend the Offer period. See Section 14 “Extension of Tender Period; Terminating; Amendments”. |
6 |
SUMMARY OF SELECTED FINANCIAL INFORMATION (in 000’s except per share data and ratios) |
For the Six Months Ended February 28, 2001 | For the Year Ended August 31, 2000 | For the Year Ended August 31, 1999 | |||||||
(unaudited) | |||||||||
INCOME STATEMENT | |||||||||
Investment income | $ | 5,145 | $ | 12,535 | $ | 14,701 | |||
Total expenses | 1,105 | 2,568 | 3,282 | ||||||
Investment income—net | $ | 4,040 | $ | 9,967 | $ | 11,419 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS—NET | |||||||||
Realized loss on investments—net | $ | (1,187 | ) | $ | (4,607 | ) | $ | (569 | ) |
Change in unrealized appreciation/depreciation on investments—net | $ | (1,942 | ) | $ | (10,598 | ) | $ | (17,755 | ) |
ASSETS AND LIABILITIES | |||||||||
Total assets | $ | 134,781 | $ | 150,109 | $ | 210,967 | |||
Total liabilities | 3,657 | 715 | 9,393 | ||||||
Net assets | $ | 131,124 | $ | 149,394 | $ | 201,574 | |||
Net asset value per share | $ | 9.26 | $ | 9.45 | $ | 10.24 | |||
Shares of common stock outstanding | 14,164 | 15,804 | 19,683 | ||||||
FINANCIAL HIGHLIGHTS | |||||||||
Per Share Operating Performance: | |||||||||
Investment income—net | $ | .26 | $ | .55 | $ | .55 | |||
Dividends from investment income—net | $ | (26 | ) | $ | (.55 | ) | $ | (.55 | ) |
Distributions from realized gain on investments—net | $ | — | $ | — | $ | (.18 | ) | ||
Distributions in excess of realized gain on investments—net | $ | — | $ | — | $ | (.15 | ) | ||
Ratios to Average Net Assets: | |||||||||
Expenses | 1.57 | %* | 1.46 | % | 1.46 | % | |||
Investment income—net | 5.74 | %* | 5.68 | % | 5.07 | % |
* | Annualized |
There have not been any transactions involving the Shares of the Fund that were effected during the past 60 business days by the Fund, any executive officer or Director of the Fund, any person controlling the Fund, any executive officer or director of any corporation ultimately in control of the Fund or by any associate or subsidiary of any of the foregoing including any executive officer or director of any such subsidiary, except that within the past 60 business days pursuant to the public offering of its shares the Fund has sold approximately 128,900 Shares at a price equal to NAV on the date of each such sale. |
The principal executive offices of the Fund are located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. |
7 |
The sale of Shares pursuant to the Offer will be a taxable transaction for Federal income tax purposes, either as a “sale or exchange”, or under certain circumstances, as a “dividend”. In general, the transaction should be treated as a sale or exchange of the Shares under Section 302 of the Code, if the receipt of cash (a) is “substantially disproportionate” with respect to the stockholder, (b) results in a “complete redemption” of the stockholder’s interest in the Fund, or (c) is “not essentially equivalent to a dividend” with respect to the stockholder. A “substantially disproportionate” distribution generally requires a reduction of at least 20% in the stockholder’s proportionate interest in the Fund after all shares are tendered. A “complete redemption” of a stockholder’s interest generally requires that all Shares directly owned or attributed to such stockholder under Section 318 of the Code be disposed of. A distribution “not essentially equivalent to a dividend” requires that there be a “meaningful reduction” in the stockholder’s interest, which should be the case if the stockholder has a minimal interest in the Fund, exercises no control over Fund affairs and suffers a reduction in his proportionate interest in the Fund. |
If the sale of your Shares meets any of these three tests for “sale or exchange” treatment, you will recognize gain or loss equal to the difference between the amount of cash received pursuant to the Offer and the adjusted tax basis of the Shares sold. Such gain or loss will be a capital gain or loss if the Shares sold have been held by you as a capital asset. In general, capital gain or loss with respect to Shares sold will be long-term capital gain or loss if the holding period for such Shares is more than one year. The maximum capital gains rate applicable to such a sale of Shares would be 20%. |
If none of the Code Section 302 tests described above is met, you may be treated as having received, in whole or in part, a dividend, return of capital or capital gain, depending on (i) whether the Fund has sufficient earnings and profits to support a dividend and (ii) your tax basis in the Shares. The tax basis in the Shares tendered to the Fund will be transferred to any remaining Shares held by you. In addition, if the sale of Shares pursuant to the Offer is treated as a “dividend” to a tendering stockholder, a constructive dividend under Code Section 305(c) may result to a non-tendering stockholder whose proportionate interest in the earnings and assets of the Fund has been increased as a result of such tender. |
Accordingly, the differentiation between “dividend” and “sale or exchange” treatment is important with respect to the amount and character of income that tendering stockholders are deemed to receive. In addition, while the marginal tax rates for dividends and capital gains remain the same for corporate stockholders, under the Code the top income tax rate on ordinary income of individuals (39.1%) will exceed the maximum tax rate on capital gains (20%). |
In the event that the sale of Shares by a corporate stockholder pursuant to the Offer is treated as a dividend, the corporate stockholder may be entitled to claim a “dividends received deduction” on the cash received, which ordinarily would be 70% of such dividend. However, corporate stockholders should consult their tax advisers about certain provisions of the Code that may affect the dividends received deduction. |
The gross proceeds paid to a stockholder or other payee pursuant to the Offer will be subject to a withholding tax unless either: (a) the stockholder has provided the stockholder’s taxpayer identification number/social security number, and certifies under penalties of perjury: (i) that such number is correct, and (ii) either that (A) the stockholder is exempt from backup withholding, (B) the stockholder is not otherwise subject to backup withholding as a result of a failure to report all interest or dividends, or (C) the Internal Revenue Service has notified the stockholder that the stockholder is no longer subject to backup withholding; or (b) an exception |
8 |
applies under applicable law and Treasury regulations. Foreign stockholders may be required to provide the Transfer Agent with a completed Form W-8BEN, available from the Transfer Agent, in order to avoid backup withholding. |
Unless a reduced rate of withholding or a withholding exemption is available under an applicable tax treaty, a stockholder who is a nonresident alien or a foreign entity may be subject to a 30% United States withholding tax on the gross proceeds received by such stockholder, if the proceeds are treated as a “dividend” under the rules described above. Foreign stockholders should consult their tax advisers regarding application of these withholding rules. |
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. |
July 23, 2001 |
9 |